Nigeria’s high interest rate is stoking inflation, Oyedele says

Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has presented a compelling counterargument against the prevailing narrative that increasing the Monetary Policy Rate (MPR) is a necessary measure to curb inflation.

According to Oyedele, the Central Bank of Nigeria’s MPR hikes last year fueled inflation, worsening the economic woes of Nigerians.

Speaking recently at a forum organised by PwC and BusinessDay, Oyedele outlined how structural issues in Nigeria’s economy, compounded by policy missteps, are undermining efforts to stabilise prices. “The MPR, as far as I’m concerned, was a factor pushing inflation up, not bringing it down,” Oyedele asserted. He explained that businesses, struggling under exorbitant borrowing costs of 35-40%, are forced to recover these expenses through higher prices, thereby stoking inflation further.

The situation is worsened by Nigeria’s undervalued currency, a point Oyedele passionately emphasised. “I do not think that N1,500/$ is the fair value of the naira. I think the naira is undervalued,” he said, arguing for a focus on recovery and stabilisation of the exchange rate. Oyedele noted that enhanced transparency in foreign exchange markets, coupled with structural reforms, could significantly reduce pressure on the naira, improving its liquidity and value.

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Further complicating matters, manufacturers in Nigeria are struggling with over N1 trillion worth of unsold inventories, a direct result of high interest rates and low consumer purchasing power. Oyedele called for a shift away from blanket MPR adjustments and towards policies that address the root causes of inflation, such as FX volatility, inefficient taxation systems, and the lack of support for local production.

Despite the challenges, Oyedele remains optimistic about the future, predicting that inflationary pressures will ease in 2025 due to fewer external shocks. However, he emphasised the need for fiscal discipline and transparency, particularly in government spending. “If government spending is from sustainable sources like taxes or resource revenues and not from printing new money, the impact on inflation is muted,” he explained, drawing comparisons with Nordic countries known for their robust economies.

The undervaluation of the naira and the reliance on MPR hikes illustrate a deeper issue in Nigeria’s economic strategy. Oyedele’s insights highlight the urgent need for a paradigm shift in monetary and fiscal policies, prioritizing structural reforms and a sustainable approach to growth.

As Nigeria stands at a crossroads, will policymakers seize the opportunity to implement meaningful changes, or will the economy remain trapped in a cycle of inflationary pressures and undervaluation? The answers will shape the nation’s economic trajectory in the years to come.